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Elizabeth Warren's consumer protection dream is following a rugged trajectory toward reality

Elizabeth Warren: "We don't need one more weak federal agency. Our regulatory system failed us."
REUTERS/Kevin Lamarque
Elizabeth Warren: "We don't need one more weak federal agency. Our regulatory system failed us."

DALLAS — If it were a movie, it might be called "The Elizabeth Warren Story."

Warren, the Harvard Law School professor tapped by President Obama to set up the Consumer Financial Protection Bureau, spoke here last week to the Society of American Business and Economic Writers. She expressed surprise — without singling out her critics — that the bureau has been hammered so persistently.


Among the most prominent critics are bankers, Republicans in Congress and elements of the media, including editorial writers at the Wall Street Journal.

Her advocacy has stirred up so much blowback that last fall, she embarked on what a Wall Street Journal news story described as a "charm offensive" to defend and strengthen her campaign for the new consumer bureau. She has been venturing into her critics' heartlands to make her case — for example, when she spoke up for the agency last month at a meeting of the U.S. Chamber of Commerce.

A map of the United States at the emerging agency's office measures the progress of her campaign. Blue push pins represent personal meetings she has had explaining the bureau and advocating for it. Red pins mark one-on-one calls she has made. White pins stand for meetings with groups.

Bankers' views split in Minnesota
Despite her efforts, debate over the agency's role continues around the nation — and in Minnesota, too, where the heads of two state banking groups express differing views.

Marshall MacKay, president and CEO of the Eagan-based Independent Community Bankers of Minnesota, got a red pin after she called him for a 15-minute telephone conversation in December. A month later, he heard her speak at a meeting with bankers. That merited a white pin.

"Each time I've heard her speak, she's been genuine in her comments," says MacKay. "She's very consistent in what she says and believes."

MacKay thinks Warren has made progress in persuading smaller and midsize banks about the value of the new agency, but he doesn't believe that she has made similar gains with large banks that are often her targets. "She would create change" that's needed, he said, while readily conceding not all banks agree with his view.

He questions, though, whether Warren understands well enough the differences between larger banks and community banks, which, he argues, have much stronger personal relationships with their customers than the big banks.

MacKay's association represents mostly smaller banks, often in rural areas. Another organization, the Minnesota Bankers Association in Eden Prairie, represents almost all of the state's other banks, including giants Wells Fargo and U.S. Bancorp.

Joe Witt, president and CEO of the MBA, didn't get a red pin and wasn't at any of those white-pin meetings. Unlike MacKay, he thinks the new agency would be better run by a panel, rather than a single director. He says the agency's powers are too great.

Witt says the mission of the new agency to concentrate solely on services to consumers is a bad idea because that would take away attention from the "safety and soundness" of banks. He says, for example, banks now delay recording deposits of checks immediately in order to have time to make sure the checks are good. An agency dedicated entirely to consumers' concerns might want deposits of checks to be recorded with little or no delay, thus increasing the risk for the banks.

Star power
Elizabeth Warren, 61, has the charisma of a Hollywood star. She is the only professor to have twice won the top teaching award at the Harvard Law School. She has been a persistent researcher and advocate for bankruptcy law reforms and has argued for years that vast portions of the American middle class are being squeezed financially, sometimes by financial service businesses fixated on maximizing profits.

She was the "TARP cop" who led oversight of the Troubled Asset Relief Program, which directed the U.S. Treasury Department to buy illiquid assets from banks to help them repair balance sheets weakened by the meltdown.

The idea for such an agency has long been the dream of Warren, who ranks as one of America's most tenacious, articulate and best-known consumer advocates. It is seen more as a potential nightmare by many bankers, who fear it will spell more regulation. They have long complained about being over-regulated by a host of agencies while thousands of non-bank rivals face little or no regulation.

Warren pledges to stick with her effort to get the agency up and running. "This is not going to go down," she declared. The bureau, she noted, has launched its website, posted her schedule on it and published a quarterly spending report.

It was mandated by the Dodd-Frank overhaul of financial regulation, which was approved by Congress in the wake of the 2008 financial meltdown. The agency will "go live" July 21, nested as an independent agency within the Federal Reserve System.

The Dodd-Frank legislation gives Obama the power to appoint a director for the bureau, subject to approval by the Senate. He has yet to name that person, but there is widespread speculation that Warren wants and will get the job. Asked if she expected to take the job, she said that was up to Obama.

In February, the Republican-led House approved a bill that would cut the agency's funding to $80 million from $143 million and eliminate her salary. Rep. Spencer Bacchus, the Alabama Republican who chairs the House Financial Services Committee, is a leading critic. Last month, he charged that Warren went beyond her mandate in planning for the agency by getting engaged in negotiations to settle disputes between state attorneys general and the mortgage service industry over questionable foreclosure practices. She has rejected that charge.

Accountability a key function
Warren told the journalists that the agency will make financial regulators more accountable by concentrating consumer-related regulation within the new agency instead of having it fragmented among a tangle of seven existing federal agencies.

"We had a system where the big banks could choose their own regulators," she said. "Scattered responsibility meant no one was accountable. And it meant "regulatory arbitrage" wherein banks could choose their own regulators.

Responding to critics who say the country doesn't need another federal agency to regulate finance, she said, "We don't need one more weak federal agency. Our regulatory system failed us."

Warren described the new agency's powers as limited because Congress can restrict its budget, other agencies can veto its rules, and a powerful financial services industry has the resources to monitor its activities. She rejected a proposal, backed by the banks, to replace the director with a five-member panel.

Some of the proposals to limit the powers of the new agency would force it to "kowtow" to lobbies, she added.

A primary goal of the agency would be to help consumers answer two basic questions about financial services: Can they afford them, and how can they shop for the best deals? Such a role would help markets perform better, as opposed to hobbling them, she said.

Warren described the agency as a three-legged stool: writing rules as required by Dodd-Frank, supervision and enforcement, and financial education.

She said 50-page documents explaining mortgage and credit card agreements scream out to consumers, "Do not read me." In one instance, she said, two federal agencies squabbled for 15 years over how to combine a single form.

Non-bank financial leaders now unregulated will be covered by the new agency, Warren added.

She said she watched for years as wages remained flat, consumer debt rose and "debt products grew more dangerous … I watched and I worried and I warned as the nation's middle class became hollowed out."

* * * *

A Minnesota first reprised: The Hail Mary Pass
One of the highlights of the business writers' meeting came when keynoter Roger Staubach, the famed quarterback who led the Dallas Cowboys to two Super Bowl victories, was asked to name his choice for the National Football League's best-ever star.

Staubach said his top pick would be Otto Graham, the standout quarterback for the Cleveland Browns in the 1940s and 1950s. But he identified his all-time favorite player as wide receiver Drew Pearson, a name that means misery for Minnesota Vikings fans.

Why Pearson, who still hasn't made it into pro football's Hall of Fame? Partly because of that last-minute desperation pass Staubach heaved down the field in the Cowboys' 1975 playoff game against the Vikings at the Metropolitan Stadium in Bloomington. With 24 seconds left and the Cowboys trailing 14-10, Pearson somehow trapped the ball against his hip and made it into the end zone even before he knew for sure that he had the ball.

Vikings players and fans say Pearson pushed off a defender and should have been penalized and no touchdown allowed.

After the Cowboys' victory, Staubach joked that he prayed the Hail Mary after he let go of his pass. As legend has it, that was the origin of "The Hail Mary Pass."

Dave Beal, a longtime business columnist and former business editor for the Pioneer Press, can be reached at dandcbeal@msn.com.

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Comments (7)

Thanks for an article on Warren, she represents the best in government officials. I heartily endorse the mission of the CFPB and her as the Director.

You may call the path of the CFPB "rugged", but imagine this: it was only four years ago, in the summer of 2007 she wrote an article in Democracy called "Unsafe at Any Rate" calling for the establishment of consolidated consumer financial protection agency...and despite the rigid rejection of the idea by powerful Wall Street insiders/big banks, less than 3 years later, this whole new agency, the CFPB exists, and Warren is its interim director.

This is an amazing achievement. Three years from a pipe dream to a federal agency. I think this speaks extremely highly of Warren's skills and dedication, and to the popularity of the mission of the CFPB to average people and our dislike of the poweful mistreatment of us by big financial institutions.

Thriving markets where there is competition and choice, (not monopolies and fraud), require effective, clean, and strong regulations and policing. Regulations done right yield better choices and cost savings to customers and also provide stable, clean markets where honest small businesses can compete on value and service rather be crushed by overly risky, fraudulent, monopolistic big/insider competitors.

California insurance reform via Prop 103 implemented beginning in the late 80s is an excellent example how financial regulation can help consumers AND provide a stable profit business climate.

I lived in Cali when this passed and the insurance companies were screaming bloody murder and said they would leave state because they would not be able to make money. but:

"Despite the insurance industry’s automatic negative reaction to insurance regulation, California has actually been a more profitable environment for insurers than the nation as a whole."

All this while Cali consumers save:
"At the time of Proposition 103's implementation California's automobile premiums were
extraordinarily high when compared to other states and to the nation as a whole. However, since Proposition 103 has been in effect, California's average premium has fallen while that of the rest of the nation has climbed. In 1999, those trajectories crossed, and California's average liability premium in 2004 -- $483.44 -- remains lower than the average in the rest of the nation -- $499.00"
http://www.consumerwatchdog.org/resources/15years_Prop103.pdf

What the Cali insurance reform did, and what the CFPB can do with Warren in charge, is just the sort of thing our government should be doing, working for all us regular folks, providing effective policing of our markets so there there is not financial anarachy, usury, fraud. The government should be working for our common wealth, for healthy markets that serve consumers and honest businesses alike.

I'm just an average middle class, middle-aged woman that grew up on the East Side of St. Paul, who works in construction, but I and many of friends are huge fans of the CFPB and Warren. We even have a facebook page for her: http://www.facebook.com/WarrenCFPB

Sorry, but that's too much power to be in the hands of one unelected bureaucrat who wasn't even confirmed by the senate because Obama knew she's never pass muster.

If the function is worthy of existence, then a board of people should be in charge, not a single political appointee with a partisan agenda.

The ONLY way to regulate the Wall street banks is to reinstate FDR's Glass Steagall legislation from 1933 that was repealed by the 1999 Congress, and signed by Bill Clinton. That repeal led directly to the banking collapse of 2008. This proposed "Warren Commission" will do no better than the last Warren commission = it will cover up the banking casinos with regulatory rhetoric. Obama, and his lackies like Blarney Frank carefully and persistently protected the Wall STreet banks since 2008 by opposing Glass STeagall reinstitution. Don't believe it? Go to the Book store, and get the Financial Commission Inquiry report - the Angelides Commission, which calls for reinstituting Glass Steagall.

Elizabeth Warren is the smartest and finest public servant we have in government; the nation should give great thanks that we have her, and she is willing to work for the American people despite a hostile environment to her efforts. My hope is she will remain and finish the work and vision she has started.

It there's hope of restoring integrity to our financial system, it starts with Elizabeth Warren.

The latest fight over the CFPB involves a credit card hotline. The bureau would be able to act on data that was garnered directly from individuals that would be compiled in a database and would be acted on if and when the bureau felt it would be fitting. That said, banks and credit cards are none too pleased. They're lobbying to have the data restricted so that it's not used improperly. This would help keep all payday loan data private.

The Consumer Financial Protection Bureau, the Obama administration's agency being set up by adviser Elizabeth Warren, plans to bring greater transparency to the credit industry by requiring the use of a simpler, more straight-forward, shopping sheet for mortgage lending. Two prototype version of the new form were released to the public Wednesday on the bureau's website. Customer and industry groups have both had mixed reactions to the new forms. Getting a personal loan will be safer with security from the Consumer Financial Protection Bureau.